Saturday, February 15, 2014

The Corruption Over Time of Metaphors

John Sparkman
posts in Daily Racing Form “Invisible Hand of the Market” HERE

“The father of
modern economics, Adam Smith, introduced the metaphor of the invisible hand of
the market in his seminal book “The Wealth of Nations” in 1776. Smith’s
metaphor for what he conceived as a natural, self-regulating function of a free
market is readily visible in the accompanying table
detailing the sharp decline in the number of Thoroughbred stallions and mares
in North America over the last 20 years and the accompanying fluctuations in stud
fees over the most recent decade.

Metaphors
are one of our most useful literary inventions, but they tend to become
corrupted over time, and whether the changes visible in stud fees are due to
factors that can be described as purely “the market” perhaps depends on one’s
definition of the market. The marketplace for Thoroughbred stallion seasons of
2014 is governed by Smith’s invisible hand, for sure, but it also is highly
dependent on the invisible – to the public – hands of veterinarians sheathed in
rubber gloves. …

Adam
Smith’s invisible hand of the marketplace works best when it is indeed
invisible. A 12 percent increase in stud fees in one year makes the
self-regulating properties of the market all too visible for comfort.”

Comment

An interesting
export of economics into the breeding horses, but it is one that is founded on
a false premise. Adam Smith did not conceive of his use of the “invisible hand”
metaphor as his “metaphor for what he conceived as a natural, self-regulating
function of a free market”.

A
more careful reading of the passage in Wealth Of Nations (WN IV.iii. 9 p 456)
show it referred to the merchant’s “insecurity” of sending his capital abroad
because of his perceived risks in doing so.His perceptions were of course invisible to onlookers.

Metaphors
“describe in a more striking and interesting manner” their “object” as defined
by Adam Smith in his “Lectures on Rhetoric and Belles Lettres”, p 29, 1762-3,
and in the Oxford English Dictionary, vol III. 1983.

Adam
Smith made no references to the market in the "invisible-hand" paragraph in WN– that is a 20th century
invention – but he did identify the stated metaphor’s object three times in the
quoted chapter (p 452), including in the “invisible-hand” paragraph (p 456).

In
contrast to John Sparkman’s assertion that “Adam Smith’s invisible hand of the
marketplace works best when it is indeed invisible”, Smith was quite clear that
markets work through highly visible PRICES.Indeed they would not work at all without VISIBLE prices!

Think
about it. There is no role for an "invisible hand" in enabling markets to work, but there often is to metaphorically :

"describe in a more striking and interesting manner" the often limited intentions of human motives in acting as they do. Interestingly, Adam Smith also understood this in his highly insightful reference to the "unintended consequences" of human actions, some of which actions are disappointing to those acting with their beneficial intentions.